What is Insurance Bad Faith? Has Your Insurance Carrier Acted in Your Best Interests?

Insurance bad faith may be a term you have heard mentioned at some time or another. It is often used in articles, legal ads, and a variety of similar sources. Insurance bad faith refers to the improper conduct of your insurance company in the handling of your claim. Not every insurance claim denial by your insurance company constitutes insurance bad faith.

As defined by Pennsylvania case law, insurance bad faith occurs when your insurance company knowingly denies a claim which it knows to be valid or which claim is denied in reckless disregard. The simple denial of a claim by your insurance company does not establish bad faith. Case law requires that the insured (you) must prove, by clear and convincing evidence, that their denial involves a knowing and intentional denial of a valid claim. Your insurance company owes you very high duty under the law to process your claim, which is sometimes referred to as a “fiduciary duty.” This duty requires them to put their obligation towards your claim before those of its own in processing claims. It is important to distinguish the duties owed to you by your insurance company versus the duties owed to you by the “other guy’s” insurance company. The “other guy’s” insurance company owes you absolutely no duty. So its denial of your claim does not constitute bad faith (at least as to you). Any duties to the other party are to its own insured only. Read more about we can help you with insurance bad faith.

Insurance bad faith law is an extremely complicated subject. Pennsylvania law defines several types of bad faith. For instance, common law bad faith is conduct the courts traditionally would declare as improper. In 1990, Pennsylvania passed its first bad faith law; “statutory bad faith,” which legislatively created the law that declared the intentional conduct of insurers to be in bad faith. Various statutes like the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL) also provide a separate remedy for improper denial of claims.

Why is the ability to establish your insurance company acted in bad faith so important? Traditionally, the insurance companies would often deny many valuable claims. The reasons were that there were no consequences for the improper denial of a valid claim. If the insured was able to establish the claim was valid through litigation, the result was the insurer had to pay the claim. There were usually no other adverse consequences to the carrier. Now, with Pennsylvania insurance bad faith statute and case law, the intentional denial of a valid claim can result in various penalties imposed on your insurance company. These penalties can include interest, attorneys’ fees and additional damages to punish the insurance company for its conduct. Those amounts could be substantial, depending upon the circumstances of the case.

It is important to note that not all insurance companies can be sued in bad faith. A workers’ compensation insurer is typically immune to bad faith claims. An employee benefit plan through your employer is also immune. These special situations are complicated.

If you believe your insurance company has wrongfully denied your claim, it is important you contact our Erie lawyers. This article barely scratches the surface of insurance bad faith. Contact our insurance bad faith lawyers to further discuss if you are the victim of insurance bad faith.